The billionaire businessman warned years of excessive borrowing in the US and UK by individuals and at national level could spark a global recession.

"The sun is rising on our borrowing bacchanalia," he told delegates at the Tory conference in Blackpool.

A slowdown would be worse than in 2001 because of high debt levels, he added.

"In New York, the economic uncertainty our two countries face today is beginning to feel similar to the economic downturn we experienced six years ago, " he said.

"But this time, the stakes are higher because more people owe more debt and so do our governments," he added.

Historically low interest rates over the past few years have fuelled a massive expansion of personal debt but as they have climbed steadily back up, many have paid the price of borrowing beyond their means.

Mr Bloomberg is a former Wall Street banker and founded the media and financial data firm Bloomberg LP.

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The smug adage “neither a borrower nor a lender be” has gained in force over the past two months. Those with enough cash squirrelled away to sit out the credit squeeze are in a happy position. Most, though, will be worrying about its impact on mortgage and credit card bills, wondering whether the criticism by George Osborne, shadow chancellor, of “an economy built on debt” carries some truth.

Household debt has trebled to £1,354.6bn in the UK over the past 10 years, rising from 90 per cent of annual household income in 1996 to 145 per cent last year – the highest proportion in the G7. The rapid increase has seen more people running into difficulties – the number of insolvencies has surged and the Council of Mortgage Lenders said in August home repossessions had been rising sharply.

Yet until now, the Bank of England has not seen rising debt levels as a risk to the economy. That is partly because insolvencies and repossessions remain relatively few, well below the numbers seen in the recession of the early 1990s. The Bank also found those most prone to default are on low incomes and therefore have a limited impact on overall consumer spending.

The majority of debt is secured on housing and held by wealthier homeowners whose assets have grown in value much faster than their obligations. Households’ net worth stood at £6,898.6bn at the end of 2006, according to official data.

Nevertheless, many analysts are now worried that the tightening in credit conditions will hit household income hard, as mortgage lenders take a tougher view of risky customers and seek to pass on their own higher funding costs. Subprime borrowers could face dramatically higher repayments, while the swathe of middle-class borrowers about to renew fixed-rate mortgages could find terms have worsened more than expected after the last year’s rises in official interest rates.

A new survey of credit conditions by the Bank suggested this week that such problems had yet to materialise, showing lenders expected to tighten conditions on corporate loans while the supply of secured credit to households would remain unchanged.

The prospects for fixed-rate mortgages may also be less serious than feared, since they are linked to swap rates that have been falling on expectations of an eventual interest rate cut.

“Even with the Northern Rock debacle in the system, financial institutions are insulating households,” said Malcolm Barr, economist at JPMorgan, who expected mortgage terms to worsen significantly only for the riskiest borrowers.

However, Michael Saunders, economist at Citigroup, said the Bank’s survey of lenders with a market share above 1 per cent might not include many of the smaller wholesale lenders who had lent aggressively and driven recent growth in mortgage approvals.

If debt burdens worsen, it will come at a time of increasing fragility in household finances. Average earnings grew just 3.4 per cent in the second quarter, the slowest rate in four years, while the amount of taxes paid has risen sharply. The growing problems of affordability in the housing market have also led to debt being held by a smaller number of households, borrowing a larger amount.

“You don’t need as large a rise in interest rates any more to have a big impact,” said George Buckley, economist at Deutsche Bank. “The whole thing comes at a really bad time for consumers.” Although the recent tightening in monetary policy has been modest compared with the 15 per cent rates at the end of the 1980s, debt service as a proportion of disposable income is at its highest level since 1992.

Ben Broadbent, economist at Goldmans, argued that the economy was better placed to weather a downturn than it had been during the last house price crash. Fewer people have borrowed the full value of their property, and turnover in the housing market is lower, so that fewer would be caught out by a fall in prices.

“I think we’re in for a continued steady rise in defaults and problems on mortgages for the next couple of years, but I don’t think they’ll reach the level they did in the late 1980s,”he said.

However, signs of a slowdown in the housing market are gathering, and many economists are now cutting their forecasts for economic growth in 2008 because they expect consumers to be cutting back spending.

Talk of a recession is confined to scaremongers – but the overriding view seems to be that things are bound to get worse.


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LONDON (Thomson Financial) - Royal Bank of Scotland Group PLC said it has priced 1.3 bln eur preference share issue and will pay a fixed a 7.0916 pct dividend per annum adding the shares have a liquidation preference of 50,000 eur each.

Separately, the group priced its 750 mln stg preference share issue and will pay a 8.162 pct annual dividend adding the shares have a liquidation preference of 1,000 stg each.

It also priced its 1.5 bln usd non-cumulative category II shares and will pay a fixed 7.64 pct dividend per annum.

RBS added it has priced 600 mln cad fixed/floating undated callable step-up Tier 1 notes, which will pay a fixed 6.666 pct coupon per annum while it priced 1.6 bln usd of preferred capital securities which will pay a fixed 6.99 pct coupon per annum.


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DEBT is an increasing problem for high-earning and older Welsh people, a major report reveals.

A study published today found that in the last five years the number of people in the over-60 age group seeking help with their debts had more than doubled.

The Debt in Wales report by the Foundation for Credit Counselling found those aged 40 to 59 is overtaking the 26 to 40 age group as the largest percentage of clients.

More women have debt problems than men and their relative numbers are increasing.

Among Welsh clients, 44% are homeowners, compared with 39% for the UK as a whole.

The study has been welcomed by Social Justice Minister Dr Brian Gibbons, who praised the role credit unions can play in helping people obtain finance.


He said £3.15m had been awarded to Citizens Advice Cymru under the Face-to-Face Debt Advice Fund to help tackle the problem, while Trading Standards in Wales have successfully bid for £500,000 to establish an All-Wales Illegal Money Lending Enforcement Unit.


Consumer debt in the UK now stands at £1,355bn. Dr Gibbons added that by September 2008 financial literacy will be formally taught to all children.


“This will put schools in a much better position to help young people appreciate the consequences of their actions as they reach adulthood and are able to access credit,” he said.


The Debt in Wales report is based on the experiences of 10,669 clients who had an in-depth counselling session between 2003 and May 24, 2007 with the Welsh Centre for Credit Counselling.


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LONDON, Sept 24 (Reuters) - Senior bonds of Northern Rock Plc (NRK.L: Quote, Profile , Research) are the safest bet for investors as speculation swirls about the fate of the mortgage lender, with holders of lower-ranking debt facing possible losses, analysts said.

The possibilities range from the sale of the lender to another bank -- likely to be the most favourable option for all bondholders -- to a run-off or sale to financial investors, which may bear more risk for subordinated debt.

"Senior debt is the only safe way to play the Northern Rock game as there are three chances of getting your money back: government, takeover or a proportional (maybe 100 percent) recovery in a wind up," said RBS credit analysts in a note.


Short-dated issues offer the best chance for investors to take advantage of the UK government guarantee on Northern Rock bonds, while longer-dated debt has the largest discount to par and therefore is likely to rally harder on a takeover.

"Sub debt remains a high risk and a pretty much binary trade -- great upside if taken over in full but a deeper downside in a wind up," RBS said.

Credit rating agencies are at odds over the bank's outlook, with Standard & Poor's cutting Northern Rock's subordinated debt to "junk" status, while Moody's Investors Service and Fitch Ratings have kept it in investment grade.

Fitch analysts said on a conference call on Monday Northern Rock faced a liquidity issue, not a solvency problem, and that senior creditors should rank equally in the event of liquidation or a takeover.


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The ’lender of last resort’ is set to become a victim of the Treasury’s urgent review of financial supervision in the wake of the Northern Rock crisis – as a phrase if not a concept.

The government believes the panic reaction to the news that the Bank of England had agreed to act in that capacity to Northern Rock, creating a run on the bank, means no other institution will want to be tarred with the same brush.

A different description of the Bank’s support function – intended to reassure savers rather than alarm them – is being considered by officials, according to government insiders.

The agonising over semantics illustrates the complexity of the task facing the government as it seeks to produce reforms that can be implemented rapidly, but without creating unintended consequences in the long term.

Insiders say they are well aware of the risks of creating the “Northern Rock equivalent of the Dangerous Dogs Act”, the notoriously bodged legislative response to a media demand for action. Ministers stress they will resist repeating what is seen as the US’s error in imposing unnecessarily burdensome regulation on the financial services industry, such as the Sarbanes-Oxley regime. But the government also knows it needs to act quickly to maintain savers’ confidence in the system.

The Treasury’s planned approach to reforming the deposit protection scheme illustrates how ministers may try to reconcile these conflicting demands. Alistair Darling, chancellor, has sought to reassure savers by pledging to look at introducing a US-style insurance system, allowing very fast pay-outs, covering 100 per cent of deposits up to a limit of about £100,000.

But introducing such a system would almost certainly involve time-consuming changes to highly complex insolvency laws. It also faces opposition from the banking industry, which could succeed in slowing its legislative path through the Lords.

The government intends to address this by fast-tracking changes to the existing scheme as a stop-gap measure. A number of changes to the scheme, including an increase in the existing £31,700 cap on compensation, could probably be implemented without primary legislation, according to experts.

The British Bankers’ Association, which has commissioned lawyers to review urgently what changes can be made without new laws, told the FT it backed the “pragmatic” approach of trying to improve the existing scheme rather than rushing to put a brand new one in place.

The banks would have to pay more to increase the existing cap on the scheme, which is at least partly funded upfront. But the sector recognises some change is now inevitable, while warning of the complexities of trying to design a new scheme.

“We’re not in favour of a US-style approach – it would affect very considerably a number of areas, such as insolvency law,” Angela Knight, the association’s chief executive, said on Monday.


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LONDON (Reuters) - The banks backing the buyout of Alliance Boots have sold over half of the 750 million pounds of mezzanine debt in the deal, a banking source said on Thursday, in a sign banks are chipping away at a backlog of leveraged buyout loans.

The debt was sold to "multiple investors" at 95 percent of face value, the source told Reuters Loan Pricing Corporation. The trades have been executed and will be funded next week.

"Good progress is being made in this market," the source said. "It's being sold, and its going, albeit slowly, at 95."


Banks globally have an estimated $300 billion (150 billion pounds) of leveraged loans on their balance sheets that have proved near impossible to shift in the past two months due to a credit market crisis sparked by fears of losses from risky U.S. subprime mortgages.



Some have suggested that it will take until well into 2008 to sort out the overhang, raising fears that banks' appetite to lend will remain constrained for many months.

But some chinks of light have started to appear. Banks earlier this week sold a $1 billion block of a $3.5 billion loan backing the buyout of Allison Transmission in the United States, a source close to the deal said.

Kohlberg Kravis Roberts and Boots deputy chairman Stefano Pessina agreed to buy pharmacy chain Alliance Boots for 11.1 billion pounds earlier this year in Europe's largest ever leveraged buyout.

The banks had to put the sale of the senior debt backing the Boots deal on hold in July, and then postponed the sale of the second-lien debt in August as conditions in the credit markets worsened. The source said no decision had been made on the sale of these tranches.



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The foreclosure butterfly flapped its wings in smalltown USA and the hurricane built up and tore through world banking. Iain Dey reports

Cathy Busby has never met Mick Mayor. The 47-year-old hospital administrator from Colorado had no idea that when she fell behind with the mortgage payments on her three-bedroom home in the Denver suburbs, it would stop Barclays extending the overdraft limit on Mayor's business four months later.

But this is the true story of the global credit crunch. What seemed initially to be a problem in the US housing market is now forcing up the cost of borrowing here in Britain, having swept from Denver to Darlington.


A prospective buyer views a repossessed property in Denver which has one of the highest foreclosure rates in America

Cathy is just one of several hundred thousand American homeowners to have become caught up in what is now known as the US sub-prime lending crisis. In spring 2005 she remortgaged the home she had lived in for 11 years and in which she raised her two sons. She borrowed $170,000, the value of the house at the time, to help pay off student debts, a car loan and other personal borrowings. She knew the 7.6 per cent interest rate she had been offered was scheduled to jump sharply after two years. But she had assumed she would be able to find a new deal, with a new lender, when the time came around.

What she hadn't banked on was the value of her home slumping to $125,000, leaving her with no prospect of refinancing a new loan an agreeable terms. Her monthly mortgage payments jumped from a little over $1,000 a month to more than $1,500. With a monthly salary of $4,000, this was too much to take. On May 1, Cathy joined the long list of American homeowners to go into arrears and begin the process of repossession - a list which is expected to stretch to more than 2m names within the next 18 months or so.

Meet Jimmy Cayne. He's one of the biggest big shots on Wall Street: the chairman and chief executive of the investment bank Bear Stearns. Cigar-chomping Jimmy is estimated to be worth about $1.3bn, and likes to spend a lot of time on the golf course. He plays bridge with Warren Buffett and Alan Greenspan. Curiously, Jimmy's life has been turned on its head by the problems that people like Cathy have suffered.

Two hedge funds managed by Bear Stearns owned billions of dollars worth of sub-prime mortgages, just like the one loaned on Cathy's home. The funds held them through complex financial instruments known as collaterised debt obligations (CDOs), which had been used to parcel up portions of all kinds of debt.

The securities held by the funds were supposed to be ultra-safe, and had AA or AAA credit ratings. But when mortgage defaults began to rise, it became apparent that some of these ratings were a little optimistic. By the middle of June, rival banks Merrill Lynch and JP Morgan Chase were trying to get their money out of the crumbling Bear Stearns funds.

While dozens of mortgage lenders across the US had been forced into bankruptcy by the sub-prime fallout, this was the first real evidence of it washing up on Wall Street. The global fear rating had just been pushed up a notch.

Cayne eventually agreed to pump $1.6bn into one of the funds to stave off collapse. "I'm angry," he said shortly afterwards. "When you walk around with the reputation for being the most rigorous risk analyser, assessor, controller and that is trashed, well you have got to feel bad. This is personal."

It turned out to be even more personal for Warren Spector, Cayne's $36m-a-year golden boy and heir apparent. Spector was forced to carry the can for Bear's excesses and was promptly shown the door. Cayne shot an 88 round at the Hollywood Golf Club in New Jersey the following day - a sharp improvement from 102 in the depths of the crisis.

Cayne was not the only one being spanked over sub-prime losses. CDOs such as those linked to the Bear funds had been sold to investors all over the world.

The CDOs with exposure to dodgy US home loans had been used as collateral against assets held in other CDOs. All these positions were leveraged. When the defaults began to show up they had a knock-on effect on funds that initially seemed unrelated. That started the panic.

Hedge funds were being forced to put up money against losses they were making on CDO investments. They raised the cash by selling equities and high-grade bonds - assets that investors were still willing to buy. The FTSE100 was kicked into a downward spiral, along with every other major equity index. Suddenly, what had started as an obscure issue in an ethereal branch of finance was headline news, beaming into living rooms across the country.

Problems began to appear in the Canadian banking system. Then the Bank of China put its hand up, admitting that it was exposed to almost $10bn of US sub-prime loans. This was global contagion.

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Paul Taylor, who runs the Qatari wealth fund stalking the supermarket, has an appetite for high-risk deals writes Helen Power

As Paul taylor Tdges closer to buying J Sainsbury, details of his previous Qatari-backed buyouts have emerged, revealing a man addicted to financial wizardry and debt.

The supermarket's board opened the books to Taylor's Qatari-state funded investment vehicle, Delta Two, last Thursday after Taylor bowed to demands from the board and the Sainsbury family to reduce the amount of debt in the bid.

But Taylor has a proven appetite for financial risk. When the Qataris bought Four Seasons Healthcare, a 440-site nursing home, elderly care and specialist mental health-care operator last year, the buyout used a financial structure that was daring even by pre-credit crunch standards. An analysis of that deal reveals that the Qatari-backed fund risked very little of its own money in the investment.

The Qataris bought Four Seasons from Allianz Capital Partners, borrowing a whopping 14 times as much as the company's turnover from Credit Suisse to fund the acquisition. Sources say the Qataris then put in as little as £50m of their own money.

Allianz provided an additional £70m of equity in the form of so-called vendor loans which were -initially intended to be repaid by the Qataris but were instead subsumed into Credit Suisse's loan.

Property entrepreneurs such as Robert Tchenguiz and his brother Vincent, with whom Taylor cut his teeth in the investment business, have made fortunes by gambling on the property market with vast sums of borrowed money supported by comparatively tiny sums of their own.

But in a corporate buyout such a small investment by the acquirer is unusual.

The Credit Suisse loan had a further layer of risky debt on top of it, secured on Four Seasons property assets.

Allianz had already done a sale and leaseback on much of the nursing home chain's property portfolio since buying it from another private equity fund, Alchemy, in 2004. The Qataris were at one stage understood to be considering a further sale and leaseback that would have added around £150m more of debt to the business.

It is thought it then decided to take a -gamble on the property market and keep hold of the assets, believing prices would rise. Instead they turned to the Royal Bank of Scotland's specialist property lending team and raised a £130m financial instrument, a so-called mezzanine loan, secured on the properties. One City source says the Qataris pay interest on the loan at a rate of 23 per cent a year. Interest on the loan rolls up for the two years, then becomes immediately payable.

City sources claim RBS originally intended to sell on part of the debt to spread its risk, but was unable to do so. One source claimed the bank had asked the Qataris to put more equity into the business because it is -worried about its investment, but sources close to the bank deny this.

However, in recognition that it is an unusually risky investment for the bank, RBS has a seat on Four Seasons board. This is almost unheard of in other leveraged buyouts, although a similar provision was made for Citadel, Och-Ziff and Perry Capital, the hedge funds who provided the riskiest bit of the debt on Malcolm Glazer's buyout of Manchester United.

Delta Two changed the terms of its financing on the Sainsbury buyout after family insisted on it and the board refused to open its books until the Qataris brought down the amount of debt in the structure. The main obstacle to a deal now is the Sainsbury's pension fund trustees with whom the Qataris must reach a deal on the supermarket group's deficit before the board will recommend their offer.

However, the Sainsbury family, who will not necessarily vote as a block but between them hold around 18 per cent of the com-pany's shares, has yet to see the complete details of the new financial structure, or give it their seal of approval. And last night the Sainsbury family reiterated to The Sunday Telegraph that they must be convinced a deal is in the best interests of the business and its pension fund members before they sign off on it.

Delta Two will have meetings with both the family and the trustees this week to give them more details of the finance structure and negotiate an agreement on the pension black hole.

It is difficult to penetrate the financing structure on details that are publicly avail-able. The Qataris say they have increased the amount of equity, which is in the form of shares provided by the government of the oil-rich state by £850,000. But under another construction they have just twiddled the distribution of debt between preference shares and a more risky PIK note (an elaborate debt instrument) to ensure they are actually putting in just £250m more.

The rest of the funding will come from Dresdner Kleinwort and Credit Suisse – who are also financial advisers on the deal – and ABN Amro, but this debt will not attract a state guarantee.

Taylor must now convince the Sainsbury family and their advisers that this is enough in order to get at least some of the holders of that 18 per cent stake on his side. He has met family members privately on several occasions, but keeps a very low public profile to the extent that he once asked his chauffeur to pretend to be him to avoid being photographed.

Yet south London boy Taylor, who hired one of the biggest yachts in attendance at this year's Mipim property festival in the south of France and is addicted to expensive cars such as Bentleys, is a colourful character.

At school he was in a remedial class called Three Delta, after which he named his advisory business, which counsels the Qataris' Delta funds. The name was intended as a joke on the class teacher who frequently said Three Delta would never amount to anything. After a brief spell as a bricklayer, he joined the Royal Bank of Scotland's corporate loans group before ending up at Rotch, the Tchenguiz's property company where he met the Qatari state investment fund, who were clients of Vincent Tchenguiz.

Taylor, much to the chagrin of Vincent, then left with the Qataris in tow to set up Delta Three, where he also hired former Tory Treasury minister David Mellor for his middle east connections.

No one knows quite what he is worth today, but one source said: "He is on a very generous incentive programme from the Qataris. And I mean very."



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LONDON (Thomson Financial) - Mining finance and development company Galahad Gold PLC said it is going for a voluntary liquidation of the company and its board intends to convene an EGM to consider a resolution for the same.

Galahad said that given the increase in metal prices since 2003, it believes that investments in the mining sector are unlikely to deliver the attractive returns that Galahad has achieved in the past.

Moreover, the company said it is subject to legal, regulatory and taxation regimes that are not conducive to the efficient implementation of its new investment strategy in soft commodities.

Hence, it said that an EGM convened on Sept 19 to consider the new investment strategy has been adjourned.

Galahad said it expects the liquidation process to be completed in four months' time.


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R3 – The Association of Business Recovery Professions, the trade association which represents 97% of Insolvency Practitioners in the UK, welcomes today’s announcement by John Hutton, Secretary of State for Business, Enterprise and Regulatory Reform, that funding of £3 million has been set aside to allow a nation-wide crackdown on loan sharks.

R3’s quarterly debt index, carried out in collaboration with market research specialists YouGov, shows that only 38% of those whose debt is causing them great difficulties have sought professional advice. 12% of those with serious financial worries have taken out extra loans, and in many cases this means resorting to loan sharks.

R3 Vice President Nick O’Reilly said,

“Loan sharks take advantage of those who are at their most vulnerable. In most cases, when an individual approaches a loan shark, they see it as their only way out of trouble, but unfortunately dealing with loans sharks can only lead to more problems. The advice from the professionals is to consult an expert as soon as you see problems arising. They can advise on the best course of action, without resorting to Illegal loans sharks. You can find a qualified IP in your area by visiting the R3 website www.r3.org.uk

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The government’s insolvency figures are predicted to climb after a summer of high interest rates and overspending.


Philip Long, an insolvency practitioner with PKF Accountants & Business Advisers warned: “The Citizens Advice Bureau figures showing a 20% rise in the numbers requesting debt counselling reflects what I see and strengthens my opinion that insolvencies are on the rise again.

“Next to Christmas, the summer period is one of the main pressures people face to spend. Everyone likes a break and those in debt have more reason than most for wanting a distraction from everyday problems. The issue is whether they can afford it or whether any additional spending on top of interest rate hikes just makes their situation worse.

“The government’s second quarter insolvency statistics showed a fall in the numbers of people going bankrupt or taking out an IVA but, with the summer season over and no let up from the Bank of England likely, I predict the figures will be breach the 30,000 mark for the first time. Unfortunately the numbers are likely to continue getting worse rather than better.”



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Alistair Darling has said the government will provide assistance to any British bank that runs into trouble.

Following news that the chancellor was acting to protect funds held at the crisis-hit Northern Bank, it emerged that a wider policy review is underway.

"We will continue to do everything we can to ensure that the market returns to normal and I'm determined we maintain a stable banking system," Darling said.

"In the event that another bank were to need assistance from the Bank of England, and there is no sign of that at the moment, then exactly the same facilities that Northern Rock has been offered would be offered to that other bank."

It was also announced that the Bank of England had moved to inject £4.4bn into financial markets in a bid to ease the ongoing problems.

Meanwhile, Northern Rock took out newspaper adverts telling customers that all existing deposits are "totally secure during the current instability in the financial markets".

Banks were already covered by the financial services compensation scheme, meaning customers could receive a maximum payment of £31,700 if a bank went bust.

But under the measures unveiled by Darling, Northern Rock savers would receive full compensation backed by the state.

And there have been suggestions that the government will adopt a US-style system of protection for all bank customers, where deposits are ring-fenced in case of a collapse.

The tri-partite committee made up of the Bank of England, the Financial Services Authority and the Treasury met again on Tuesday, and the chancellor gave an update to the cabinet.

Gordon Brown and Darling both reassured colleagues "that the volatility we have been seeing in financial markets which is the origin of recent events relating to Northern Rock is an international phenomenon", the prime minister's spokesman said.

"The second question for the UK is how well placed we are to withstand shocks of these kind, and because of the underlying strength of our economy and because of our regulatory and fiscal framework we are well placed to withstand these shocks as we have withstood similar shocks over the past decade," he added.

Phil Hammond, shadow chief secretary to the Treasury, said the chancellor had played his "last card".

He told GMTV: "The stability of the economy is the most important thing. The Conservatives have long warned of the of the dangers of building the economy on a mountain of debt.

"We need to restore confidence in the markets then take a long term look at the way the regulatory system is structured.

"The chancellor has played his last card with the guarantee he gave yesterday. People have now been given an absolute government guarantee - if that doesn't stabilise the situation, nothing will."

Liberal Democrat Treasury spokesman Vince Cable said ministers still had questions to answer.

"Is the Bank of England in effect proposing to nationalise Northern Rock to underwrite it?" he asked.

"And what will be done about those irresponsible managers who led Northern Rock into its current problems?"


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Tony Ryan had not heard of Northern Rock until 2000, when broker searches threw up the bank's name as the only lender willing to finance the purchase of a home in Bedfordshire, a commute away from his new job as a research scientist at SmithKline Beecham.
Having paid his way through university using student loans, it was a fresh start. Recently separated, with two children, Mr Ryan, 46, had no savings so needed to borrow a sum to cover the full value of the two-bedroom cottage and pay for urgent repairs.

Tony Ryan had not heard of Northern Rock until 2000, when broker searches threw up the bank's name as the only lender willing to finance the purchase of a home in Bedfordshire, a commute away from his new job as a research scientist at SmithKline Beecham.
Having paid his way through university using student loans, it was a fresh start. Recently separated, with two children, Mr Ryan, 46, had no savings so needed to borrow a sum to cover the full value of the two-bedroom cottage and pay for urgent repairs.


Rock proposed a mortgage at 95% of the value of the property, plus a further unsecured loan, an extra 30%, to cover the repairs. The bank was unperturbed by Mr Ryan's temporary contract at SmithKline Beecham and that he was looking only to repay monthly interest.
For a time all appeared well. Mr Ryan remained in full-time employment, was promoted and enjoyed some pay rises. He moved house after joining another drug firm, AstraZeneca, as a senior research scientist in Leicestershire. Again the property needed work. He turned to Rock for a 125%, interest-only mortgage. Then his personal finances, on a shaky footing since his university days, spiralled out of control, ending in him being refused credit. On top of the mortgage, he had personal and credit card debts totalling £90,000.

Mr Ryan asked his creditors to revise or freeze interest on this debt while a manageable repayment plan was worked out by counsellors. With a monthly income of £2,230, he had nearly £1,900 of repayments to meet - debt he could never hope to clear. All creditors quickly agreed to a review except Rock, which told Mr Ryan it was "not our policy to do that". Meanwhile, aware that mortgage repayments were about to increase with the expiry of the fixed-rate term, he arranged a sale of the property. But after solicitor and estate agent fees, as well as Rock's £4,000 redemption penalty, the deal left Mr Ryan with £1,000 of negative equity - an amount he could not afford. He pleaded with the bank to transfer the shortfall to a loan. Again, that was not bank policy. The sale would have collapsed, Mr Ryan says, had his estate agent not agreed to cut its fee.

Mr Ryan still had his unsecured home improvement loan to contend with. He had not realised mortgage redemption would trigger a clause in this loan doubling repayments. Again, he asked the bank to consider his ability to pay. Again, that was "not policy".

Mr Ryan, who is coming to the end of a spell off work due to depression, was filling out bankruptcy forms yesterday. "I don't want to do it," he said. "But I have no alternative."


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Winston has a remaining balance on his mortgage of £60,000. 18 months ago he started his own business, but it went bankrupt (discharged seven months ago). He incurred a £10,000 CCJ, and missed three mortgage payments. He is now in full-time employment earning £65,000 a year. He wants to move and is looking for a mortgage representing £280,000 on a capital and interest basis at 70 per cent loan-to-value. What are his options?


Sarah Arfaoui is product development manager at Preferred Mortgages

“Based on the information that has been provided about Winston, we would consider offering him a product from our mid-adverse range.

One of the products from the mid-adverse product range that would closely match his needs is our one-year fixed full status mortgage product. This is currently offered at an interest rate of 8.69 per cent. The product has no extended tie-in, which means that Winston would not be committed to staying with the product for longer then necessary.

Provided Winston maintains his full and consecutive monthly payments on all borrowing in accordance with the arrangements for credit with us or any other creditors or lenders, he will be able to improve his credit profile over a 12-month period, and potentially may wish to remortgage to an appropriate prime mortgage product at this time.”

Alan Lakey is a partner at Highclere Financial Services

“Winston’s previous adverse history will clearly impact on his choice of lenders. His options have also been reduced by the volatility and scuffling within the non-conforming sector. The combination of bankruptcy, CCJ and arrears places this case in the medium to heavy adverse category.

We are not told when the CCJ was dated or whether it has been satisfied. Assuming it has not been satisfied, First National has a 7.04 per cent three-year fixed rate available via selected outlets. The application fee is a reasonable £899 and First National accepts the CCJ, arrears and previous bankruptcy as long as only one payment has been missed within the last three months.

Its debt-to-income ratio affordability calculation confirms that the loan size is acceptable and Winston may favour a fixed rate to ensure the loan remains affordable. If not, Salt offers a LIBOR-linked rate of 7.01 per cent which also accepts the adverse.”

David Hollingworth is head of communications at London & Country

“Winston has suffered quite severe credit difficulties following the collapse of his business and all in a very short space of time. It’s an unusual situation to have launched a business, suffered bankruptcy and reached the point of being discharged in such a short time.

The first thing for Winston to consider would be whether he has got back on a even keel after such upheaval. We don’t know if the CCJ and arrears have now been cleared but it would be wise to concentrate on eroding this before taking on a larger loan. It could be worth waiting six months to gain some stability and could also open up cheaper options.

There are lenders that can look at Winston’s case now. Timings and status of the CCJ will be important, but in any case Winston will likely fall into the medium to heavy adverse bracket.”


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Restructuring now the hottest game in town
The M&A boom is over and law firms must adapt — but that could be bad news for associates
James Rossiter

Waiting for a table at a popular roof-top restaurant this week, I bumped into one of London's most prolific private equity lawyers. I asked him how busy he was. He smiled and replied that he had virtually nothing on.

For the past five years, "Mr Private Equity" has been hard to pin down even for a breakfast meeting without four months notice. Even then, meetings were pulled at the last minute as yet another all-night deal-breaker turned into a two-day marathon.

I asked whether, given the recent trouble in the credit markets, his firm was gearing up for plenty of restructuring work. Mr Private Equity said: "I don't think there will be plenty of businesses going bust. But there will be plenty of re-financings."

His answer speaks volumes about what corporate and banking lawyers need to do to stay on top of any sea changes in work flow: adapt or lose out. Takeover work may be on the wane but restructuring in all its guises is set to come back into fashion.

Back in late 1999, just as the last boom in mergers and acquisitions was reaching its zenith and high-yield bond offerings went into overdrive, several of the larger City law firms started gearing up for more insolvency work. This year, it was possible to detect a similar trend emerging even before the credit crunch put a number of multi-billion-pound takeovers on hold.

Internal rumblings at Clifford Chance suggest that the firm's seven-partner restructuring team has already put in requests from other departments for extra manpower. Mark Hyde, head of Clifford Chance's restructuring team, says: "There is clearly anticipated to be an upturn in the market for restructuring and insolvency work but the avalanche certainly has not come yet." The emphasis can be placed on yet.

That Hyde talks about insolvency — still a taboo subject for the private equity deal-maker — in the same breath as company restructurings is an indication of which direction Clifford Chance think refinancings will go.

He adds: "The assumption is the wall of money will dry up and when refinancing is not available those companies may be forced into restructuring with existing lenders as opposed to refinancing with those lenders."

Expectations of more restructuring work on the horizon have also been raised by a few high-profile moves in the investment banking world in the past six months. First, Blackstone poached Martin Gudgeon from Close Brothers, where he was head of restructuring. Then NM Rothschild named Andrew Merrett as its new head of debt restructuring.

In March, Goldman Sachs announced it had appointed Andrew Wilkinson, managing partner and head of corporate restructuring at US law firm Cadwalader Wickersham & Taft. His appointment, months before the credit cruch took hold, triggered speculation that Goldman was expecting a wave of insolvencies.

He joined forces with Lachlan Edwards, NM Rothschild’s former head of restructuring, who joined Goldman last September to launch the Wall Street bank's European restructuring team.

Goldman insisted that Wilkinson's move was merely part of its desire to help companies be more efficient with their balance sheets, denying at the time that it foresaw an upswing in corporate failures. Either way, given the change of sentiment in the corporate world, Wilkinson's track record in sorting out telecoms refinancings and his involvement in the Eurotunnel administration and a host of bond holder-led company restructurings now looks timely.

Over the past few weeks Goldman has announced it is raising a $1.5 billion debt fund to take advantage of corporate credit trading under par. Lehman wants to raise a $3 billion fund chasing the same type of debt. Globally, the wheels seem to be rapidly being put in motion for the sort of large-scale refinancings and restructurings Clifford Chance's Hyde envisages.

Law firms whose profits soared last year thanks to takeover work who now want to catch the next wave of restructuring work may want to take a leaf out of the accountancy guide to business planning. Deloitte UK's senior partner John Connolly, delivering another strong year of trading last month, had already calculated his entire firm's exposure to private equity deals. Thoughts of a potential drought were clearly on his mind.

Connolly calculates 10 per cent of Deloitte's UK group revenue is directly attributed to private equity, while fee income relating to transactions generally accounts for 15 per cent of income. He is, however, forecasting a big pick-up in consultancy work to help on work-outs and restructurings.

Deloitte has the benefit of huge division of ex-Anderson consulting partners who are up-and-running on restructuring work. Law firms could do worse than investing in similar resources.

Those law firms who do miss out on corporate recovery work may need to start thinking hard about a restructuring of their own. When I did finally get to my table at that City restaurant, I dined with the heads of a sizeable London law firm, where talk quickly turned to how they would cope with a downturn in M&A work.

The managers of this law firm said they would have no hesitation shaving a few highly-paid associates with two or three years qualification under their belt. They expect other similar-sized law firms will be glad to follow suit.

Partners, it seems, are beginning to tire of having to give in to young associates' requests for a year out travelling mid-career with the guarantee of a job held safe until they return. For over a decade, it has been an employee's market. That may be about to change. Perhaps that warning will encourage a few of this year's batch of newly-qualified lawyers to think hard about a career in insolvency.


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The number of people asking Exeter Citizens' Advice Bureau for help with debt problems has reached an all-time high.The Exeter CAB handled 11,000 debt inquiries in 2006/07, an increase on the previous year of four per cent.

These accounted for 46 per cent of all the issues brought to the CAB.

The trend is showing no signs of slowing down, as figures for the current financial year so far show that debt enquiries make up 52 per cent of the matters brought to Exeter's CAB. There are about 20-25 debt issues raised every working day.



Exeter's CAB is dealing with around £6m of debt with its clients.

Steve Barriball, director of Exeter CAB, said: "The majority have had a serious incident in their life, such as illness, bereavement or redundancy, which has affected the assumptions on which their finances were planned."

He said the increase in interest rates this year is a concern looking forward, as changes take time to work their way through. He therefore expects the number of debt enquiries to continue to rise over the next couple of years.

The second biggest issue at the Exeter branch, accounting for 27 per cent of inquiries in 2006/07, is welfare benefits.

Nationally, the number of inquiries to CABs about debt increased by 20 per cent in the last year to bring the total for 2006/07 to 1.7m.

CAB advisers around the country deal with more than 6,600 debt problems every working day.

The number of debt problems brought to CAB has doubled in the last 10 years.

Credit card debt and problems with unsecured loans accounted for 40 per cent of the CAB caseload. One in four of all debt inquiries concerned credit and store cards.

Consumer credit debt problems of all kinds increased by 14 per cent, while problems with overdrafts and unsecured personal loans increased by more than 18 per cent. Inquiries about bankruptcy jumped by 50 per cent.

Citizens' Advice chief executive David Harker said: "These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continues to pay the price, becoming overwhelmed by serious debt that can have a devastating impact on their lives."

Mr Harker said lenders need to do more to check borrowers are in a position to keep up repayments when they take out credit.

"We also want to see creditors being more willing to negotiate with people in debt, and to work with us in helping people manage their debt problems effectively," he added.

"People also need help to build their understanding, skills and confidence in dealing with money matters and particularly in using credit sensibly," he said.

It also appears that many hundreds of thousands of people are increasingly struggling to meet their day-to-day living expenses.

Gas and electricity debt problems shot up by 33 per cent, while council tax debt enquiries went up 25 per cent and telephone debt problems by 19 per cent. Problems with mortgages and secured loans were up 11 per cent.

The national figures were published yesterday.

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Fears of recession are prompting firms to clamp down on their bad debtors, forcing many to pay up or go out of business.

Recent hikes in interest rates, coupled with the slowdown in consumer spending, is putting companies under severe pressure and, as a result, many are struggling to pay their bills.

But, according to debt recovery specialist Karl Williams, who is speaking at the forthcoming Credit up North Conference, with talk of an impending recession, there is an increasingly litigious attitude towards debt collection as more and more companies are issuing insolvency procedures to collect outstanding debts.

However, experts are warning businesses to heed caution over taking suppliers to court as they could end up with a hefty bill and may not even recover the money they are owed.

Karl Williams, head of debt recovery at Manchester law firm Pannone, says his department has never been busier as many companies have learned lessons from the recession of the early 1990s.

He says: “Lack of stringent credit management procedures forced many firms out of business, but amidst fears of a new economic slowdown, people have a lot tighter controls in place and are also much more prepared to go through the courts.”

However, Karl says that while such pro-activity is good, companies should look at each case individually and weigh up the financial implications.

He says: “The courts are very keen for debt disputes to be settled out of court as the cost liabilities, particularly in defended actions, can be extremely high.

“Also, even if a business gets a judgement against the money owned, will the debtor have sufficient funds to be able to pay up?

“My advice is to carefully consider the costs involved and make sure they are convinced the defendant can pay the bill, otherwise they could end up incurring substantial costs without recovering a penny of the original debt.”

Karl Williams is speaking at the inaugural Credit up North Conference, which is the brainchild of entrepreneur Steven Holt and is a showcase for the credit, risk and fraud industries.

Steven says that mediation requirements should be the first part of any legal case. “What we need to see is that as part of standard pre-action protocol, a documented mediation meeting should have taken place on claims of a certain value before the court proceeds to a trail date.”

He says that this would make people think twice about issuing vengeance claims or inventing ‘spurious’ defences.

Steven adds: “The end result in a lot of cases that are brought about for vengeful motives rather than commercial sense is that the eventual legal cost, management time and stress can outweigh the principal sum. We need to be taking a more evolved view of litigation and the process has to be one that dictates the mediation process as opposed to suggesting it.”

Credit up North is taking place on November 6 and 7 at Manchester’s International Conference Centre. The event has attracted a huge amount of interest from a number of organisations including; information experts Experian, law firm DLA Piper, the Institute of Credit Management and Her Majesty’s Court Services.

TV’s Jacqueline Gold, Chief Executive of Ann Summers, have been secured as guest speaker along with a whole host of leading Credit, Risk, Insolvency, Litigation and Money Laundering / Fraud Prevention experts.

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Requests for help from households overwhelmed with debts have soared by 20 per cent in the past year, figures from Citizens Advice show.

The organisation received 1.7 million different inquiries about how to deal with mounting debts in the year to April, a record. The debt caseload now makes up one third of all its work and the organisation has almost run out of trained debt advisers.

Problems with debts run up on credit card and store cards dominate, accounting for almost half of all debt inquiries. However, Citizens Advice said that there was also a sharp rise in problems over day-to-day living expenses. Inquiries on how to handle gas and electricity arrears were up by a third, while queries about council tax debt rose by a quarter.

Citizens Advice said that the surge in calls for help was evidence that the lengthy consumer boom was taking its toll. It fears that the banking credit crunch will mean even more households falling into severe debt.

The Bank of England kept interest rates on hold when it met last Thursday. However, high street banks have begun to charge higher rates of interest on the cash that they lend to one another, a result of the mortgage crisis that has hit the US. If the banks decide to pass on that cost to their own customers, debt-laden consumers will face bigger monthly repayments.

“These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price, becoming overwhelmed by serious debt that can have a devastating impact on their lives,” said David Harker, chief executive of Citizens Advice. He criticised credit companies for lending more cash to customers already in debt. He also urged credit companies to negotiate with customers rather than issue them threats of court proceedings.

Total debts accumulated by consumers stand at a record £1,354.6 billion, exceeding the value of the output of the entire economy which stood at £1,330 billion in mid-2007. Phillip Hammond, the Shadow Chief Secretary to the Treasury, said last night: “An economy built on borrowed money is built on borrowed time.”

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The charity said it had seen a 20 per cent rise in those struggling with borrowing, handling 1.7 million cases last year.

Debt accounts for one in three of inquiries at the CAB, with advisers in England and Wales dealing with more than 6,600 such problems every working day. They warned that there was no let up in casualties of the credit boom and increases in the cost of living.

Credit card debt and problems with unsecured loans dominated inquiries, accounting for 40 per cent of the CAB's debt caseload. Overall, consumer credit problems rose by 14 per cent, while problems with overdrafts and loans grew by more than 18 per cent. The number asking about bankruptcy rose by 50 per cent.

Citizens Advice said the figures, published as part of Advice Week, indicated that hundreds of thousands of people were increasingly struggling to meet their living expenses. David Harker, the chief executive of Citizens Advice, said lenders needed to do much more to make sure borrowers were genuinely in a position to keep up with repayments.

One 42-year-old woman said: "I got into difficulty with credit cards. I ended up with £4,000 bill. I had bought a computer to help with my son's homework. My council tax had got into a mess - they lost two of my payments - so I borrowed for that. I also got into rent arrears."


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LONDON (Reuters) - Banks, hedge funds and private equity firms are poised to pour billions of dollars into leveraged loans and distressed debt to capitalise on the recent credit market turmoil.

The investment community is struggling to absorb about $300 billion (150 billion pounds) of global loans in the pipeline, most coming from the record-setting leveraged buyout boom in the first half.

About 13 distressed funds have raised $23 billion through August, already topping the $18 billion raised for such funds in all of 2006, according to research firm Private Equity Intelligence (Preqin).


Distressed debt specialist MatlinPatterson raised a $4.5 billion fund last month and Newport Global Advisors, a unit of buyout firm Providence Equity Partners, also raised a $500 million fund in August, Preqin said.

It added that the prospects of distressed investing look "better than ever."


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One of Britain's largest debt advice charities, the Consumer Credit Counselling Service (CCCS), is demanding that regulators crack down on rogue companies. It says they are using its name to lure vulnerable people into taking out expensive and sometimes unnecessary debt repayment schemes.
It says that private companies are masquerading as the CCCS on search engines such as Google and Yahoo to sell loans and lucrative Individual Voluntary Agreements (IVAs) to people who want independent advice from a non profit-making organisation.

Citizens Advice and National Debtline have also complained about brokers and lenders using their names to generate business.
Researchers at Which?, publishers of new book, Managing Your Debt, found that typing "CCCS" into search engines results in a top (paid-for) listing of "cccs - need help?" It's not the charitable adviser, but a company calling itself Credit Card Consolidation Services, which sells IVAs, generating a fee income of as much as £7,000 for each agreement. The site is run by Debt Free Me, based in Blackburn.

The charity CCCS says it has been in contact with Debt Free Me, accusing it of passing off as the charity and breaking advertising rules. It adds it has had several cases of people who are near to bankruptcy and who wanted independent advice, but who found themselves talking to call centre staff at Debt Free Me instead.

A spokeswoman for the charity said it was upset that vulnerable people could be misled when trying to find them on the internet. It is compiling a dossier of complaints, which it is sending to the Office of Fair Trading.

Guardian Money contacted Debt Free Me to ask why it paid Google and Yahoo to appear at the top of searches for the CCCS with the message "cccs - need help?"

The company responded that selling loans and IVAs was a "cut throat business" where such practices were common. A spokesman, who refused to give his name or title, said: "We have terrible trouble with companies doing the same thing to us." When asked how much the company paid Google, he put the phone down.

A Google spokesperson said that it would consider complaints about companies passing themselves off as rivals, but its service was open for all clients to use. "Google AdWords enables advertisers to provide targeted information to people actively searching for it online, and is open to organisations, charities and voluntary organisations as well as companies," he said.

The OFT said it was aware of traders using names similar to other organisations and the potential for confusion: "In our consideration of a trader's fitness to hold a consumer credit licence we investigate all complaints and where we have the necessary evidence we do take appropriate action."


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An energy assessment firm that was working with the government on home information packs (Hips) has gone into liquidation.Faero ceased trading two weeks ago after a battle to retain control over the energy certificate accreditation part of the scheme.

The firm was appointed by the communities department in February last year to set up an official accreditation scheme for energy calculations in accordance with building control regulations.

Faero says the department had assured it that the scheme would be extended to cover the energy performance certificate (EPC) in the Hips. Companies wishing to train EPC inspectors would therefore have done so under Faero’s scheme.

However, the government’s decision to simplify the requirements of the EPC meant that Faero’s scheme was no longer relevant to Hips and that other companies could also accredit assessors. The company stopped trading on 22 August, claiming it would not have enough work to continue.

Its board had written to the communities department in June, warning that its plans to allow other firms to accredit EPC inspectors risked damaging the Hips scheme.

The letter said: “If other schemes are allowed to operate to different standards the consumer will not be protected from poor-quality EPCs.”

An energy industry source said: “This is gross mismanagement by the communities department. Faero had the rug pulled out from under it. Allowing any entity to accredit EPCs means standards will degenerate to the lowest common denominator”

Faero’s collapse was complicated by the fact that its company secretary, Richard Theobald, was one of the surveyors suspended from his role on the Hips advisory panel last month because of a potential conflict of interest.

Theobald was a former director of the Surveyors and Valuers Accreditation (Sava) scheme, which was the first company allowed to accredit home inspectors. The National Audit Office has launched an inquiry into the matter.

A government source said: “No organisation should have a monopoly on the industry, which is what Faero would have had. It could have applied to become an EPC assessor, but wanted more.”

A communities department spokesperson said: “This is a commercial decision for Faero. We have processes in place to ensure all energy assessors meet the highest standards through training and accreditation.”

Faero could not be contacted for comment.


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An estimated four million people have taken on too much debt but two-thirds of them are in denial about their financial situation, a survey showed.

One in 16 people in the UK spends more than 25% of their wages on unsecured debt repayments each month - the official definition of being overindebted, but only 2% of people admitted their household finances were seriously stretched.

People aged between 35 and 44 are most likely to be struggling with high levels of debt, with 11% paying out more than 25% of their income in repayments each month, according to debt management group Chiltern.

Men are slightly more likely to be overindebted than women, at 6.8% compared with 6%, but they are also more likely to admit they are facing financial difficulties at 2.5% compared with 2%.

Chiltern spokeswoman Joanne Gill said: "There are lots of people who are officially overindebted, but two-thirds of them don't think they have a problem.

"Unfortunately debts don't go away, they need to be repaid and ignoring them will just make the situation worse.

"Anyone who is paying a quarter of their income to service unsecured debts should get help to put those repayments on a sustainable footing before the situation gets worse."

People in East Anglia are most likely to be in denial about their financial situation, with just 0.7% considering themselves to be overstretched, despite the fact that 12% are spending at least 25% of their pay on repayments.

Those living in Lancashire are most likely to admit they are struggling at 4%.

Nems questioned 1,000 people during March.


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A single rejected IVA can cost creditors £400 each
Client banks of the Insolvency Exchange (TIX), which include HSBC, Halifax / Bank of Scotland, Royal Bank of Scotland, Marks & Spencer Money and First Direct, should immediately set aside upwards of £400,000 a month to pay the case fees for complaints that will be lodged with the Financial Ombudsman Service.

Consumers that are now subject to unfair treatment, as of 1 Sept, under the “TIX Compliant IVA” policy are eligible to file formal complaints with the Financial Ombudsman Service. This also includes consumers that have banks and lenders where an Insolvency Practitioner (IP) has not been able to put forward an IVA that does not meet the creditor’s arbitrary minimum dividend policy.

The Financial Ombudsman Service is tasked with helping to settle disputes between businesses providing financial services and their customers. The service is FREE, that’s right, NO CHARGE, to consumers but banks will have to pay a case fee of £400 per complaint case sent to the Financial Ombudsman Service. The case fee must be paid by the bank, regardless of the outcome.

This little known service of the Financial Ombudsman is a perfect opportunity for consumers who feel their IVA proposal rejection or exclusion from being able to enter an IVA was unfair. The Financial Ombudsman Service (FOS) was established by parliament, but serves as a fair and impartial expert to help resolve complaints. Consumers that make complaints do not have to accept the decision of the FOS and can proceed to court with their claim. However, if a consumer accepts the ruling of the FOS then that decision becomes binding on the debtor and creditor.

Potentially consumers will be able to recover tens of thousands of pounds from creditors for complaints made to the FOS. The Financial Ombudsman Service has the authority, if they determine the bank has acted wrongly, to instruct the bank to compensate the consumer for losses of up to £100,000. Let’s look at a few example where the bank and lenders can be exposed for these large fines and penalties.

Complaint Example 1. A consumer goes to an Insolvency Practitioner and attempts to put forward a fair, reasonable and sustainable IVA proposal. The creditor either rejects the proposal without individual consideration or because the proposal does not meet the arbitraty criteria as determined “unilaterally” by the creditors. This might be in the form of hurdle rates for minimum dividend returns or an objection to fair and reasonable IP fees.

If that debtor then goes bankrupt as a result of not having access to the IVA to resolve their debt then they could make a complaint showing the cost of the damage they will suffer as the result of bankruptcy. This claim could include the cost of exclusion from future credit and the higher cost of credit because they were unecessarily made bankrupt.

Complaint Example 2. A debtor’s IVA proposal is rejected and the debtor then enters an informal debt management plan or token payment program. The debtor should be able to demonstrate how the unreasonable rejection of the IVA has now placed the debtor in a position where they will be damaged by repaying much, much more through a non-binding debt repayment plan when their reasonable IVA proposal was rejected. The consumer should be able to make a case for compensation based on the difference of the amount of financial harm they will suffer as a result of the IVA being rejected and being forced into a less reasonable repayment plan.

Complaint Example 3. If a debtor puts forward an IVA and the lender does not treat that IVA according to the Banking Code, which the lender has subscribed to, a case for damages from those actions could be made. Under the Banking Code, lenders are supposed to treat consumer proposals to repay debts both with sympathy and to review the proposal individually. If it can be demonstrated that the lender did neither with the submitted IVA proposal, then it should be academic to calculate damages from that action.

Regardless of the outcome of these complaints to the FOS, which may take up to 9 months to complete. Creditors will be subject to a case fee of £400 per complaint submitted. This means that if a rejected IVA consumer puts forward a complaint against his five creditors in the IVA, that creditors may have to collectively pay as much as £2000 per rejected or supressed IVA.

And while one might argue that a creditor should not have to pay a £400 case fee if they did not vote, that in itself is a vote. Failure to ratify a fair, reasonable and asustainable IVA proposal by ommission does not appear to make a creditor any less culpable for financial damages subsequently incurred by the debtor.

It is suggested that credit card companies, banks and other lenders make themselves very familiar with the Funding and Case Fee publication from the Financial Ombudsman Service. A case fee becomes chargeable when the customer contact division of the FOS passes a complaint on for further work to one of the casework teams of adjudicators. I guess the good news for the baks is that the fee does not actually become payable until the case is settled and closed. The FOS finance team will then send out an invoice for the case fee to the business concerned at the end of the month in which the case is closed.

Banks and lenders are also prohibited from recovering the cost of the consumer filing a complaint with the FOS. Consumers have a statutory right to refer disputes to the FOS, free of charge, if they are unhappy with the way a business has dealt with them.

For assistance in putting forward a complaint to the FOS, you can refer to the complaints procedure on the site or get hands-on assistance from the Debt Mediation Service by calling 01446 711780 or visiting their Website.

If an Insolvency Practitioner feels the consumer has not been treated fairly by creditors in the IVA process, they probably have a duty to inform the debtor about their rights, or assist them, to put forward a formal complaint to the FOS.


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Attention All IPs With Rejected Northern Rock Cases
Ron Hutcheon, a Liverpool solicitor, is involved in defending two actions brought by Northern Rock (NR) against two debtors. Nothing new in this but the litigation has been brought by Northern Rock after they refused IVAs prepared by Licensed Insolvency Practitioners. Ron can’t go into too much public detail because of the litigation but what these two actions have in common are:

• Northern Rock were the only creditor at the meeting to vote against the IVA
• Northern Rock were the majority shareholders so had overall say
• The debt owing was unsecured
• Northern Rock, following rejection of the IVA, took immediate court action against the debtor
• Northern Rock obtained a judgement
• Following judgement Northern Rock applied for an immediate charging order
• Northern Rock’s unsecured position is now secured

Ron would be very appreciative for any feedback from IPs if this is a similar situation that anyone might have faced with Northern Rock rejected IVAs.

From a commercial point of view what Northern Rock did seems sensible. They are protecting their shareholders and reducing their risk. Where the problem lies is how does Northern Rock’s actions fit in with the Banking Code to treat their customers “fairly and positively”.

A number of questions have arisen as a result of these cases. Does the rejection of a properly presented IVA from an Insolvency Practitioner automatically mean that Northern Rock has not treated their customers “fairly and positively.?” Certainly from the customer’s point of view they have not. Should these words be construed objectively or subjectively or a bit of both? Research suggests there is no definitive answer.

One thing that concerns Ron is that he has spoken to many IPs who have informed him that Northern Rock’s rejection rate of IVAs is much higher than the industry standard. Certainly the two clients Ron is currently representing both involve Northern Rock and the commonality of facts are strikingly similar.

Then in July 2007 was the public comments of Northern Rock’s chief executive as reported in the Telegraph, blaming practitioners of IVAs and claiming they are not acting in the customers’ interest. “In 9 of 10 cases”, Northern Rock felt that all the customer needs is to reorganise their finances and that there is some “ambulance chasing” going on.

Ron wants to know if IP’s believe that each case Northern Rock is considered on its own merit or is there an adverse attitude towards Individual Voluntary Arrangements?

Ron says, “It would be interesting to find out from IPs their experience with Northern Rock and other institutions where they think there may be an unusually high rejection rate of IVAs. If I am able to produce factual evidence from IPs which lends support to other IPs I have spoken to, it may open to a flood of claims to the court to re-open IVA refusals. Ultimately the court will decide, in my view, whether creditors who reject an IVA have treated their customers “positively and fairly” in accordance with the Banking Code.”

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